Monday, November 28, 2022

Botswana considers synthetics under new minerals policy

In July 2020 a top official at the ministry of minerals – Mmetla Masire, then Permanent Secretary, told a Parliamentary Committee that, “Botswana cannot engage in production and sale of synthetic diamonds”.

His reasoning at the time was that such a move will have an impact on the value of Botswana’s natural diamond. “Let’s not compromise our diamonds. If we start production of synthetic diamonds or any association with them we will be compromising the value of our diamonds,” Masire, now Managing Director at the state owned Okavango Diamond Company (ODC) said at the time.

Fast forward to March 2022, the government of Botswana, though the minerals ministry has signaled a policy shift that will see the diamond rich nation moving in the opposite direction of Masire’s 2020 sermon. The latest Minerals Policy which was tabled and passed in Parliament in late March gives green light to business in synthetic minerals including diamonds.

Through the latest policy, Botswana government says it recognises that with advances in technology, production of man-made mineral products such as synthetic diamonds of gem quality has become a reality.

The policy document details that the minister responsible, currently Lefoko Moagi, will ensure that only business activities that do not compromise the mineral policy overarching aim of promoting the maximization of economic benefits to the nation while enabling private investor to earn competitive returns are permitted or licensed.

“The objective of government is to facilitate and promote the business of synthetic minerals only to the extent that it is value adding to the economy of Botswana”, reads part of the policy paper tabled in Parliament by Moagi in late March.

Through the policy the government says it will monitor and evaluate developments and trends in the minerals industry – locally and globally. The Policy will also see the government initiating a strategic cost benefit analysis of any synthetic minerals industry considered in the country as well as formulate appropriate legislative and regulatory framework for the effective and efficient regulation of the synthetic minerals subsector.

The new policy comes at the back of calls relating to the oversight and management of mining companies in Botswana and the effectiveness of the legal instruments governing the sector. Of particular concern is the Department of Mines’s failure to sufficiently monitor operations of mining companies in Botswana – both small and big. This concern and several others have been raised by the Auditor General – Pulane Letebele in her 2020 report which suggest that mining companies in Botswana could be side-stepping their tax, royalties’ payment obligations amongst others. Key amongst other the interest of Letebele and her team at the Auditor General office was on the robustness of legal Instruments that governs all the minerals mined in the country.

Through a few Acts of Parliament, the department of Mines has been given a primary responsibility to amongst other things ensure an enabling environment for enhancing citizen beneficiation in the mining sector.

The Mines and Minerals Act of 1999 for instance gives the Department of Mines authority to charge companies that contravene the provisions of some the existing law. Despite this huge responsibility, the Auditor General says the Department of mine ccannot enforce payment of fines nor can it impound equipment used in contravening the law by some of the companies as this is outside their jurisdiction.

“The Department relies on other stakeholders like Botswana Police Service for assistance, especially on the impounding of machinery”, AG report for 2020 notes.

Another scary discovery is that the Department of Mines has no contractual agreements with most of the mining companies operating in the country, except for Debswana mining company. While the concerned Department in its own right awarded mining licences to many mining companies over the past few decades, it has since emerged that the licences have inconsistencies and are not legally enforceable. To illustrate her shock, Letebele state that some mining companies’ licences included terms and conditions on how mining activities would be undertaken while others did not.

By the time the Auditor General engaged the Department of Mines on its key responsibilities, it turned out that Botswana had no mining policy which can guide efforts made towards achievement of optimal beneficiation from the mining industry. Instead, it has emerged that the Department solely relies on the use of various Acts of Parliament established to regulate mining operations.

At the same time, the Auditor General noted the silence of the Mines and Minerals Act (1999) on the formula for the calculation of dividends and factors such as allowable/non allowable costs to determine the value of the Government share. The worry is that due to the absence of specific legislation that guides the formula, the government has not been able to sufficiently verify royalties and other dues paid by mining companies. The same can be said about the respective reports submitted by the concerned companies relating to their mining production and sales.

Upon making enquiries on the abnormality, the Auditor General was told by the Department of Mines management that a review of the Mines and Minerals Act was underway.

The management is also reported to have told Letebele’s office that the current Act – which was last reviewed in 2007 did not have impediments to revenue collection since dividends were paid on the basis of the decisions made by the various Board of Directors.

“Management further stated that deferment period was often stipulated by the Minister as a condition when allowing deferment of royalties” said Letebele.

Despite the assurance by the department of mines, it turned out that most of the licensed mining companies in Botswana did not pay royalties as required by Section 66 (1) of the Mines and Mineral Act of 1999, but instead deferred payments.

A special audit of the department of mines revealed that large mining companies owed the Government as much as P264 million in royalties. Just like the big brothers, junior miners also did not pay royalties as required and were as a result, in arrears of over P1 million by the year 2020.

Letebele says there another inconsistencyy was in submission of monthly returns by small mines which submitted their returns as required by Section 598(1) of the Mines, Quarries, Works and Machinery Act of 2002.

“The Department reminded small mining companies whenever 90 they failed to submit their monthly returns but did not do the same with large mining companies. The Department did not enforce provisions of the Mines and Mineral Act of 1999 which empower them and the Minister to take specified action against non-compliant companies”, reads part of Letebele’s special report on the department of mines.

Section 598 (1 and 2) requires mining companies to submit production returns, however, Auditor General says some companies had not declared their production at all whilst some of those who declared understated their production.

Due to the legislation and policy failures at the Department of Mines, the government could be getting a lesser share of what is due to it each passing production year. The failure to maximise on minerals revenue collection leaves Botswana’s fiscus position on the red given subsequent deficit budget since the beginning of the National Development Plan 11 which goes to bed in two years’ time.

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